Category Personnel/Employment
Title The Fair Credit Report Act (FCRA) Overview
Preview The Fair Credit Report Act (FCRA) Overview

The Fair Credit Report Act (FCRA) Overview
Updated 2018

In the process of screening 2.6 million prospective employees for its clients in 2001, the payroll company Advanced Data Processing (ADP) found that 44 percent made false statements about their employment history, 41 percent misrepresented their educational achievements, and 23 percent lied about having a professional license or credential. Many of the discrepancies found were trivial—like an inexact date of hire. But often applicants were clearly trying to gloss over rough spots in their employment history or pump up qualifications. Sometimes the checks uncovered outright fraud. One in every twenty applicants (130,000) that ADP screened had been convicted of a felony in the past seven years.

Money, July 2002

Note: The above information shows why it is so important for Christian schools to do comprehensive background checks on all applicants they are seriously considering for any position. Some states, such as California, require background checks for private school personnel. Under most circumstances, you will seek criminal background check information by going through a government agency (e.g., state police, FBI). If you go through a private third-party vendor to obtain information such as verification of educational degrees, Social Security number trace, driving records, or credit history, you must follow the federal Fair Credit Reporting Act. The article below focuses on some of the technical issues in the Fair Credit Reporting Act that you need to know when you do background checks through third-party vendors.

Information for Conducting Background Checks

It is important for your school to conduct background checks on all employees who will have unsupervised access to children. Likewise, it is also important to do credit history checks on employees that will be handling money for your organization. Some of the most effective background checks are done with the assistance of others—companies that are in the business of researching and sharing information about others. When you use their services, however, you must be certain you comply with requirements of the Fair Credit Reporting Act (FCRA).

You may be held liable for unlawful discrimination, regardless of whether it's intentional, if your investigation practices result in unequal treatment regarding race, national origin, religion, sex, pregnancy, physical or mental disabilities or any other legally protected category or activity.* Other potential claims include invasion of privacy and defamation. Similarly, when you receive a background report, you should carefully review it and avoid making adverse decisions based on clearly incorrect or inapplicable information.

[Note: *This is a reminder that there is a "religion" exemption for religious nonprofit organizations under Title VII of the Civil Rights Act of 1964. Christian schools are permitted to discriminate in personnel decisions based on religion. For instance, a Baptist school is not required to hire a Jewish or Muslim applicant, nor is a community Christian school required to retain an employee who converted to Mormonism during Christmas break.]

Applicability of FCRA to Background Checks

If you perform reference and background checks using services offered for a fee by third parties, FCRA generally applies. When you use a consumer reporting agency or access a third party's database to obtain "consumer reports" or "investigative consumer reports," you must comply with FCRA. Be sure to understand these two terms.

Consumer reports are reports that are prepared by a consumer reporting agency (e.g., Equifax) and that bear on an applicant's or employee's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living when that information is used, expected to be used, or collected in whole or in part for employment purposes. Employment purposes include the firing, termination, reassignment, or promotion of an applicant or employee.

In the context of a background check, almost any communication of information concerning an applicant or employee from a consumer reporting agency to an employer would potentially be a consumer report. Common examples of consumer reports include Department of Motor Vehicles record checks, criminal background checks, and credit history checks when that information is obtained from a consumer reporting agency.

Investigative consumer reports are a subset of consumer reports in which information on an applicant's or employee's character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with the applicant's or employee's friends, neighbors, or business associates. Common examples of investigative consumer reports are employment verifications and interviews with former employers and coworkers when they're performed by a consumer reporting agency.

Investigative consumer reports can pose certain legal risks in the preemployment context because of privacy concerns and potential discrimination and retaliation claims. For this reason, clear legal and practical guidelines should be documented and exchanged with the background check agency assisting you.

Complying with FCRA Regulations

Once you decide to conduct background checks, there are four basic steps to comply with FCRA.

Disclosure and Written Consent. Before requesting a consumer report or an investigative consumer report, you must (1) provide to the employee or applicant a clear and conspicuous disclosure that a report may be requested, and (2) obtain written consent from the employee or applicant. There are additional disclosure requirements applicable to investigative consumer reports. The disclosure cannot be buried in an application form. It must be provided to a job applicant in a separate document, which may also contain the consent language. That separate page may be staples to the application if the only information on the page deals with FCRA notification.

Here is a wise HR tip: Phrase the consent language so that it applies not only to consumer reports related to the job application but also to any reports that might be obtained after commencement of the employment relationship. You may wish to have all job applicants sign a consent form in anticipation that you may, on occasion, determine that a post-employment consumer report without further pre-report notice and consent is desirable.

Certification to the Consumer Reporting Agency. Before obtaining a consumer report, you must provide certification to the consumer reporting agency that your intended use of the report is authorized under FCRA. Most, if not all, consumer reporting agencies will request that you sign their certification agreement. You should carefully review these arrangements to ensure that there is a minimum compliance with applicable law and that no undesirable additional requirements are incorporated.

Providing Documents Before "Adverse Action." When you obtain a consumer report, including an investigative consumer report, that influences, in whole or in part, the decision to not hire an individual or to take any type of adverse employment action involving an current employee, you must provide the following two documents to the individual before making any final employment decisions:

  • A copy of the actual consumer report or invesitgative consumer report that has been relied on
  • The summary of consumer rights prescribed by the Federal Trade Commission (FTC)

The FCRA regulations are silent on how many days you must wait after providing the above two documents to a job applicant or a current employee before taking adverse action. If the person alleges that there is an error in the report, try to provide him or her some time to try to get the reporting agency to change its records before making the decision. There is some indication in the literature that a week may be sufficient time before making an adverse decision. Look for another possible way to verify the disputed information. To avoid claims of discrimination, you should at least be consistent in how you handle similar types of issues.

Notice After Adverse Action. After you have provided copies of the consumer report and the FTC summary of FCRA rights and waited any reasonable time period you have established, you may take adverse action. After taking action, you must provide an adverse action notice. The notice may be provided orally, in writing , or electronically, but written form is a safer way to document that you fulfilled the law.

The adverse action notice must contain the following:

  • The name, address, and telephone number of the consumer reporting agency (including a toll-free telephone number established by a national agency) that provided the report
  • A statement that the consumer reporting agency didn't make the decision to take the adverse action and is unable to inform the consumer about the specific reasons the adverse action was taken
  • A statement of the consumer's right to obtain an additional free copy of the report from the consumer reporting agency by making a request within 60 days of receiving the adverse action notice
  • A statement of the consumer's right to dispute with the consumer reporting agency the accuracy or completeness of any information in the report

Employers aren't required to provide an explanation to job applicants or employees about which part of a consumer report influenced the adverse decision.

FCRA enables job applicants and employees to sue for violations in federal or state court for actual damages, fixed penalties, or both if the employer fails to provide required notices and obtain appropriate consents at any point during the four-step process. Even if you have undisputed proof that the adverse decision was inevitable without the consumer report, penalties are recoverable.

Summary of the Four Steps to Follow Under the FCRA

Step 1:  Prior to supplying a consumer report, an employer must certify to the consumer reporting agency (CRA) that the employer will follow all the steps of the FCRA. The CRA will provide the paperwork for this step.

Step 2:  An employer must obtain a written release and a separate disclosure from a job applicant before obtaining a consumer report. (a) On a document separate from the employment application, there must be a clear, conspicuous disclosure that a report may be requested. This is to prevent the disclosure from being buried in an employment application. Nothing prevents this stand-alone page, on which just this topic is covered, from being stapled to the application. (b) You must obtain written consent from the applicant. The language for the written consent may be added to the stand-alone page, the end of the application, or both places. (c) You must provide a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act."

Step 3:  If you receive a consumer report and decide not to hire the applicant as the result of anything, in whole or in part, in that report, there things must be given to the applicant within three days: a pre-adverse action letter, a copy of the consumer report, and "A Summary of Your Rights Under the Fair Credit Reporting Act." (See samples following.) The purpose is to give an applicant the opportunity to see the report that is being used in making the adverse employment decision. If there is something in the report that is in error, the applicant has the opportunity to contact the consumer reporting agency to try to correct the error.

Step 4:  Time must be given to allow the applicant to try to get the report corrected before you make a final adverse employment decision. FCRA is not specific about the amount of time you must allow. Several sources recommend that at least five business days be given. Then an adverse action notice may be sent to the applicant along with another copy of "A Summary of Your Rights Under the Fair Credit Reporting Act."

Some Additional Information About the FCRA

  1. Under the law, a consumer reporting agency is defined as "any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports."
  2. Unlike a number of other federal employment laws that apply if the employer has a certain number of employees, FCRA applies to all employers.
  3. Some administrators have asked whether FCRA applies to background checks done by their state or by the FBI. Any state or federal agency that is a repository of criminal history information is not a consumer reporting agency and therefore not subject to the requirements of the FCRA.
  4. If you seek an investigative consumer report while a person is an employee, be sure you can show an employment-related reason why you need to access employee credit reports, such as probing theft or fraud incidents.
  5. You may wish to have all job applicants sign a consent form in anticipation that you may, on occasion, determine that a post-employment consumer report without further pre-report notice and consent is desirable. In that case, you would attach the following form to your job applications, even if you didn't immediately seek a consumer report.

Special Notice for California Schools

The California Investigative Consumer Credit Reporting Agencies Act (ICRA) does not allow you to give job applicants a consent for m that garners permission for pulling a current consumer report and future consumer reports after the commencement of employment. Each and every time a consumer report is going to be pulled from a consumer reporting agency, the employee must sign a consent form. The information in item #5 does not apply to California schools.

Exception: Under ICRA, notice and consent are not required "if a report is sought for employment purposes due to suspicion held by an employer of wrongdoing or misconduct by the subject of the investigation." However, keep in mind that under the FCRA, disclosure of an investigative consumer report must be made no later than three days after the report is requested and a copy of the report within seven days of its arrival to the employer. Disclosure of in-house investigations or reference checks is not required unless public records are obtained.

Once again, ACSI strongly recommends that the advice of an attorney experienced in employment matters be sought if your school is conducting an investigation of any kind.

Additional Information on FCRA can be found at:

Notice: This article is designed to provide accurate and authoritative information in regard to the subject matter covered. It has been provided to member schools with the understanding that ACSI is not engaged in rendering legal, accounting, tax, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Laws vary by jurisdiction, and the specific application of laws to particular facts requires the advice of an attorney.

Association of Christian Schools International
731 Chapel Hills Drive
Colorado Springs, CO 80920
Phone: 719.528.6906

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